Reference no: EM13199591
21st Century Cat is a film producing company which is contemplating the productionof a new film. They estimate that:The production of the film will require an investment of £300,000 in year 0.The distribution will generate a stream of cash flows equal to £200,000 in year 1, and£100,000 in each of years 2 and 3.In year 3, the producer will sell the rights to a tv broadcaster for £90,000.Distribution costs will be £75,000 in year 1, and £50,000 in each of years 2 and 3.Due to regulation aimed at promoting cinema, all income generated by the project istax-free.a. The company's financial experts say that the appropriate discount factor for theproject is 10%.
Calculate the NPV using this discount factor and determine whether the project should be funded.
b. Assume now that the company has a debt/equity ratio equal to one.
The company's bonds yield a 6% return, the company's beta is equal to 0.5, themarket risk premium is 5%, while the risk-free rate is 3%.
Calculate the NPV ofthe project with the new data.
c. The experts say that the discount factor you used in b. underestimates the risk ofthe project. They claim that there is high uncertainty on whether the new filmwill be a hit or not.
The variance of cash flows is accordingly very high. Therelatively low beta you employ fails to capture this. How would you reply to thiscomment?
Determine the average product function
: Determine the mariginal product. Determine the average product function. Find the value of L that maximizes QFind the value of L at which the marginal product function takes on its maximum value.
|
Calculate the profit of each firm at the equilibrium
: Suppose that two identical firms produce widgets and that they are the only firms in the market. Their costs are given by C1 = 60Q1 and C2 = 60Q2, where Q1 is the output of Firm 1 and Q2 the output of Firm 2.
|
What are some viable alternatives to the problem
: how can we as a country can provide universal health coverage. Approximately 47 million individuals in the U.S. are uninsured or underinsured. What might this mean in terms of future growth in the U.S. In addition,
|
What quantity of bmws should the firm sell in each market
: Suppose that BMW can produce any quantity of cars at a constant marginal cost equal to $20,000 and a fixed cost of $10 billion. You are asked to advise the CEO as to what prices and quantities BMW should set for sales in Europe and in the United S..
|
Calculate the npv using discount factor
: Calculate the NPV using discount factor and determine whether the project should be funded.
|
Estimate the selling price per pound of product
: A large chemical plant is being planned with the capacity to produce 3 million pounds (lb.) of product annually. Raw-materials costs for the product are $0.45/lb. and utility costs are $0.25/lb. Overhead costs are 75 percent of the labor costs.
|
Calculate consumer surplus and lwes profit
: If the regulators of LWE want to make sure that there is no deadweight loss in this market, what price will they force LWE to charge? What will output be in that case. Calculate consumer surplus and LWE's profit with that price.
|
Would this make the model 800 machine more or less desirable
: Would this make the model 800 machine more or less desirable and Repairs and maintenance costs on a model 800 machine, with a model 400 machine used as standby, would total $3,800 per year
|
What is maximum amount that your company can afford to spend
: The cost basis for the new equipment required is $200,000 (MACRS five-year property class). Increased annual revenues, in year zero dollars, are estimated to be $350,000. what is the maximum amount that your company can afford to spend
|